Comptroller and Auditor General preparing to examine transfer pricing cases

July, 03rd 2014

The Comptroller and Auditor General (CAG) is preparing to examine transfer pricing cases, which have significant revenue implication for the exchequer and lead to longdrawn litigation between companies and tax authorities.

The CAG has so far not been auditing transfer pricing cases, mainly because of the shortage of staff with expertise in international tax rules.

The government auditor has begun training sessions on the subject for its staff, according to information obtained under the Right to Information Act. The central revenue division of Comptroller and Auditor General audits assessment orders passed by tax departments across the country.

The process of understanding transfer pricing is currently on with three training sessions having been conducted in the last eight months, said the Right to Information ( RTI) response.

CAG offices in Mumbai, Bangalore, Chennai and Kolkata among others have also been asked to conduct field studies on transfer pricing, it added.

"The decision to audit transfer pricing cases was taken considering the recent surge in tax disputes and its increasing relevance. But we would take up only those cases which are not sub-judice," said a seniorComptroller and Auditor General official requesting anonymity as he is not authorised to speak to the media.

The government auditor is examining various models followed by foreign countries to understand how different clauses could be adopted in the Indian context, he added.

In recent years, transfer pricing has been an issue of concern for tax authorities, particularly in assessing the returns of multinational companies.

Transfer pricing is used by multinational companies to reduce their tax burden by shifting the cost of inputs across borders between their different units. Companies such as Vodafone, Nokia and others have been locked in disputes with tax authorities over transfer pricing.